You've made the decision to take over a business. Then you are on the eve of an exciting adventure and possibly a major boost to your entrepreneurial career.
All successful business acquisitions have one commonality: the entrepreneur worked systematically toward the acquisition of the business. This is because thorough preparation and planning provides peace of mind, overview and structure.
This step-by-step plan will help you: by carefully going through all the questions and points of attention and listing them clearly for yourself. This will maximize your chances of successfully acquiring a business.
Buying a business is often more interesting than starting a business yourself from scratch. Products, customers, suppliers: it's all already there. It involves less risk and contributes directly to profit, revenue or increased market share. In addition, research shows that of all SME businesses that are taken over, no less than 70% perform better after the takeover than before.
At Brookz, we see that the number of new businesses coming to the market is undiminished. Whereas in the 1990s an entrepreneur stayed with his company for about thirty years, the Takeover Barometer shows that in 2024 a quarter of the businesses sold are younger than ten years old. The new generation of entrepreneurs is no longer buffering to possibly pass it on to their children later. If they can sell their business well after a number of years, they choose to do so. That is a sign of success.
So entrepreneurs are entering the acquisition market with their businesses sooner, and this trend will only continue in the coming years. Add to that increased financeability, undiminished interest from potential buyers and hungry investment companies crowding each other out: then 2025 should be a good acquisition year.
These are the most important steps in buying a business:
- Creating a buyer profile
- Finding businesses
- Evaluating businesses.
- Determine value and price
- Arranging funding
- Negotiate
- Complete the deal
1. Establish a buyer profile.
You want to acquire a business, but where do you start? Quite simply, everything starts with creating a comprehensive buyer profile.
Not sure yet what kind of business you want to buy? No worries. Most entrepreneurs who begin their search usually have no idea either. So start by creating a comprehensive buyer profile that gives you the necessary focus.
Answering the following questions will already give you a more concrete picture:
- What sector or industry are you looking for a business in?
- What type of business are you looking for: manufacturing, service or trading business?
- What size should the business be in terms of revenue and number of employees?
- In which region of the Netherlands should the business preferably be located?
- What (growth) phase is the business in: rapid growth, cash cow or turn-around?
- How much (financial) risk are you willing to take?
- In what time frame would you like to acquire a business?
- Do you want a 100% takeover or a (partial) interest?
Next, it is important to rank the answers to these questions based on what is important to you. Prioritizing all search criteria makes the search process much easier. This way, during your Internet search, you will quickly know which profiles are worth responding to - and which are not.
Another important advantage of a sharp buyer profile is that you will also be taken much more seriously by potential sellers and acquisition advisors. After all, if you yourself cannot make clear what you are looking for, sellers will have little incentive to exchange extensive information with you about their businesses.
2. Finding businesses.
You know what kind of business you're looking for, but where to start your search? There are plenty of options, and the good news is: you can start your search yourself right away online.
Find
Anyone looking for a house will find virtually the entire supply on the Internet. But as transparent as the housing market is, the acquisition market for businesses is opaque. It is therefore important to be close to the fire and tap into the right contacts. There are a number of sources of information to help you track down a business of interest:
- Own (entrepreneurial) network
- Events, industry and entrepreneur meetings
- Online platforms such as Brookz (post buyer profile)
- Acquisition advisors
- Banks, accountants, lawyers, etc.
- Cold acquisition (calling and/or emailing)
It is important to set your buyer profile as broadly as possible and thus build a list (longlist) of interesting businesses. After all, you'll need to take a good look at 30 to 50 businesses before you arrive at a shortlist of 2-3 concrete acquisition candidates.
Also remember that in SMEs a business often has to be awarded to you, because there are usually several buyers for the same business and the price is not always decisive for the seller. Therefore, it is good to always put yourself in the seller's shoes: why does he want to sell a business, what is important to him and how can you respond to this?
3. Evaluate businesses.
You can largely do the non-financial analysis of a business yourself. In fact, you should do it yourself, because you need to know exactly what you are buying.
Now that you have a business in your sights, you are going to investigate whether the business is indeed what you are looking for. When you contact the seller, if there is mutual interest you will receive the information memorandum, which contains a lot of data about the business. Below are some important points to pay extra attention to.
Owner dependency
One of the most important questions you need to answer: how decisive is the owner to the success of the business? Does everything revolve around him or her or has he or she gathered around him or her a management team capable of operating independently?
Secret of the business
A successful business does something better than the competition. It could be anything: price, quality, a strong brand. Try to figure out what makes the business unique, where the opportunities are for growth, and what are the risks that threaten the business.
Market and competition
Does the business operate in a growing, stable or declining market? How is the market divided: are there a few large players or many small ones? Is the market local, national or international? And what future developments - think legislation and technology - affect the industry?
Products and services
How valuable and indispensable are the business's products, what is the added value? How is the business model structured? What opportunities did the previous owner miss and what can you add yourself to achieve growth?
Staff
Look critically at your future employees. What is the make-up of the workforce? Which employees are crucial to the business's success? And will they stay even after an acquisition?
Customers and suppliers
You'd rather not buy a business that depends on just a few customers. What about the spread of customers? And the smaller the number of suppliers, the greater the risks to a business. Investigate not only how many suppliers the business has, but also how they are doing financially and whether the agreements are well written down.
Hiring an adviser?
You can do a lot yourself when taking over a business, but especially when it comes to financial analysis and tax/legal aspects, you usually still need an adviser. Brookz s Advisor Search Engine makes it quick and easy to find the right adviser.
4. Determine value and price
After the financial and non-financial analyses, you need to start determining what the business is worth in your eyes. And thus what you are willing to pay (at most) for it.
The value of a business is the result of arithmetic. The past only plays a limited role. In a nutshell, the value of a business is mainly determined by what you think you can earn with that business in the future. This is set against your investment and an estimate of the risks you think you will run.
As a buyer, you look at at least 3 aspects for this:
- Gross profit: how much profit does the business make? Often the average of the past 3 years is considered.
- Revenue composition: how predictable is the revenue? Is it one-time revenue or recurring orders? Or even better: fixed subscriptions?
- Entrepreneur dependency: how decisive is the current owner to the success of the business?
In practice, the value of a business is often expressed in a simple formula as a factor x gross profit. In SMEs, that factor, also called multiple, averages between 4 and 6 times gross profit.
So suppose: the target business has an average gross profit of 200,000 euros. Then the indicative business value, depending on the sector in which the business operates, is between 800,000 and 1,200,000 euros.
To arrive at a more accurate valuation, a few more specific risk factors are applied to the value of this indicative range. In addition to the owner dependence and revenue composition mentioned above, these are:
- Dependence on 1 or 2 large customers
- Dependence on 1 or 2 large suppliers
- Market position and reputation
- Spread of entrepreneurial activities
- Barriers to entry for new competitors
From value to price
Important to know: value and price are two different concepts. Waarde is the outcome of a calculation and is usually the starting point for negotiations. Price is what you as the buyer will ultimately pay for the business.
To reach a deal, the buyer will often pay a little more and the seller will have to be willing to "water down. Several factors play a role in this game, such as the buyer's financial position, competition from other buyers, financing options. Last but not least, emotion: how badly does the buyer want and how badly does the seller want?
Value indication
In the Brookz Takeover Barometer, we publish the average multiples for 12 sectors every six months. Want a quick indication of the value of a business? Then find the multiple for the sector in which the business operates and multiply that number by the gross profit. It's important to note that you should always subtract a business's debt from this indicative value.
5. Arranging funding
If you and the seller intend to reach a deal, it's time to arrange (or preferably before) de financiering of the purchase. These days, this is often done through a "stack financing.
Currently, banks are willing to finance a maximum of 50 percent of the total acquisition sum. So the other half will have to come from your own resources and other sources of financing. It is very important that you have a picture of your financial picture as early as possible in the buying process. It is a waste of time and energy if you spend months in talks with a seller, only to find out in the final stage that you cannot close the deal because of the financing.
This means that, in practice, a mix of financing sources is needed - it is sometimes referred to as stack financing - to finance the acquisition.
Own funds
You can't avoid bringing in your own money. After all, if you yourself are already unwilling to take risks, why should a bank or investor? Financiers therefore expect commitment, and they want you to suffer too if the business does not do well.
Bank Loan
The most obvious method of financing is a bank loan. A major advantage of the bank is that you keep full ownership of the shares, so you do not give away control. In addition, a bank loan is cheaper than capital from an investment business, which has much higher return requirements.
Subordinated loan
This is a loan (often from the seller in the form of a vendor loan) where the creditor is subordinated to other creditors such as the bank and other creditors in the event of a faillissement. As compensation for that risk, a higher interest rate is usually negotiated.
Earn-out
An earn-out involves making part of the purchase price dependent on the company's future profits or revenue. For example, the buyer pays 1.5 million euros immediately and another three tons if profits reach a certain level. If profits are lower, the additional amount is forfeited or paid pro rata. This arrangement is used in particular if the seller has far too rosy expectations about the future in the eyes of the buyer. He is only willing to pay for these expectations if they come true.
Investor(s).
Unlike financiers, investors do not provide debt capital, but mainly equity and subordinated loans. As a result, they also become co-shareholders. Investors, by the way, offer more than just money. They often have a large network and knowledge of the market, which you as a buyer can take advantage of.
In addition to "classic" structures such as a subordinated loan or earn-out, there are more ways to get a deal done with the help of the seller. Increasingly, a partial transfer of shares takes place because otherwise the financing will not be completed. Initially, for example, 60 percent is purchased. The remainder is then transferred to the buyer in phases in the following years.
6. Negotiate
You have vetted the target business and are in the process of arranging financing. Now it's a matter of reaching a good deal through negotiation with the seller.
If all goes well, by now you have done your homework and verified through a bookkeeping investigation(due diligence) that all of the seller's figures and claims are accurate.
The next step consists of signing a letter of intent with a non-binding offer on your part. Important points to be included in it are the purchase price, deal structure and important guarantees. It is obvious that you don't just go into negotiations. There are a number of things you need to think about beforehand:
Determine your limit
What is the maximum amount you are willing to pay for the business? This will prevent you - even if you fall in love with the business - from bidding irresponsibly high amounts.
Define your objectives
What are you willing to negotiate about? And what are you not? Consider the purchase price and warranties, as well as a consulting contract for the seller, retaining staff and keeping family members employed. Also consider what is definitely not negotiable.
Warranties and indemnities
Besides price and payment terms, warranties and indemnities are the main point of contention during negotiations. These guarantees and indemnities should protect you from all kinds of risks and claims from the past.
Be prepared to call off the sale
Make sure you never become dependent on the deal. Always be prepared to call off negotiations or your position will deteriorate. Better no deal than a bad deal.
Show respect for the owner
An important aspect in contacting the business owner, is to work on a good relationship from the first meeting. Show respect and win his trust, because at the end of the day he has to give it to you. In addition, do not be too emphatic about your plans. This is because they implicitly criticize the previous owner, who will antagonize you.
7. Complete the deal
You have reached an agreement with the seller and the signatures have been signed. That means you are ready to transfer.
Once the negotiations have been successfully completed and you have secured financing, it is time to sign the final sales contract at the notary. This is also called the closing.
The purchase agreement contains the purchase price, payment terms and any other agreements you have made with the seller. By the way, signing the purchase agreement does not settle the share transfer. This requires a notarial deed of transfer. Only after passing this deed of transfer will you be the new owner of the shares (and the business).
Share transaction
The delivery of shares does not take place until the seller has certainty about receiving the purchase price. The notary sees to this. On the day of delivery, the buyer deposits the purchase price into the notary's escrow account. Before the notary proceeds with delivery, he calls the bank to ask if the money has indeed arrived.
Asset/liability transaction
In an asset/liability transaction, a visit to the notary is not required, as no transfer of shares takes place. Because large sums are often involved in such a transaction, a notary is usually called in. He is then responsible in particular for directing the flow of funds.
The vast majority of business transfers in SMEs involve equity transactions. The main reason is that the seller puts this on the table as a hard demand. Certainly a seller with patience or with a desirable business can afford such an attitude. In addition, buyers - after weighing the pros and cons - do not always feel like the hassle surrounding an asset transaction.
After signing all the signatures, it is time to congratulate each other and the champagne can be uncorked!
